What Are the Best States to Form an LLC in 2024?
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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
Have you been so immersed in your side hustle that your thoughts are turning towards LLC formation? If so, you’re ready to be one of many entrepreneurs that choose to start an LLC. But where is the best state to form an LLC? For many people, it will be their home state, but there are factors that could steer you in a different direction.
Best States to Form an LLC: Key Takeaways
You can start an LLC in any state, whether you live there or not. But for most small and mid-sized businesses, your home state is the simplest and least expensive option.
Delaware, Wyoming, Nevada, and New Hampshire are all business-friendly states that could be appealing alternatives to your home state in specific circumstances.
An LLC filing service can navigate each state’s unique filing requirements for you so you can focus on your business.
Benefit from unique tax advantages and safeguard your assets when you establish an LLC.
What Is an LLC?
An LLC, also known as a Limited Liability Company or Limited Liability Corporation, is a business entity popular among entrepreneurs looking to create an organized business structure.[1]
Advantages of an LLC
The popularity of LLCs is well-deserved, as this type of business offers several advantages for entrepreneurs, including the legal protection of personal assets and pass-through taxation.
Limited Liability
All owners of an LLC are known as members and are provided limited liability protection similar to that offered by corporations.[2] Basically, this means that if the worst happens and an LLC fails or is sued, creditors can’t go after an owner’s assets. This structure serves as a protection from personal liability.
Pass-Through Taxation
Arguably, the biggest reason entrepreneurs choose to form an LLC is tax rate advantages. LLCs with two or more members are considered partnerships for income tax purposes, while single-member LLCs are considered sole proprietorships.[2]
Both classifications provide the same tax benefits. LLCs are considered pass-through entities, meaning their business income passes through to their members, who report it on their personal income tax returns. This bypasses double taxation by avoiding taxes at the corporate level.
The 5 Best States to Form an LLC
What makes a state a great place to form LLCs? It boils down to business costs. Your business’s location affects the taxes you pay, regulations you must follow, utilities, salaries, insurance rates, and more.[3] Business formation can seem prohibitively expensive to new business owners. Still, the following states, along with some help, can mitigate that.
1. Your Home State
Right off the bat, let’s make one thing clear. For most entrepreneurs, the best place to start an LLC will be in their home state .
Everything comes down to simplicity. There’s less red tape to jump through when small business owners form limited liability companies in the state they conduct business in.
Let’s say you live in Massachusetts, which charges $500 to file an LLC. Meanwhile, Delaware only charges $90.[4] You’re free to form your LLC in Delaware at that lower price, and saving $410 on upfront costs is tempting for a business just starting out. However, this option could cost you more money, time, and hassle in the long run.
You’ll still have to register your business as a foreign LLC in Massachusetts, despite it being your home state. That means additional filing, paying extra fees, and higher tax rates.
Taxes are another excellent reason to stick with a domestic LLC. You might look at a state like Nevada, which has no state income tax and low sales tax rate,[5] and think you’re home-free. Start an LLC there, choose to be taxed as a corporation, and you’re free to rake in the tax benefits. Not so.
You still have to register a foreign LLC in your home state, meaning you’re paying taxes there, all while maintaining annual fees, formation fees, and other costs in two states for essentially two limited liability companies.
For most business owners, especially those navigating a new business venture, it makes more sense to form their LLC in their home state. However, in the rare cases where a domestic LLC might not make sense, or for small business owners with very specific plans, there are other options.
2. Delaware
Delaware is considered one of the most business-friendly states in the nation for LLC formation. In 2021, 66.80% of all Fortune 500 companies were incorporated in Delaware[6] While that stat isn’t specific to limited liability companies, it shows the appeal Delaware holds to business owners.
It’s not hard to see why so many small business owners view Delaware as one of the best states to form an LLC. The filing fee for an LLC is just $90, solidly on the low end compared with other states. Add to this a lack of taxes on out-of-state income, lower tax rates for franchises, and a simple filing process. You have a recipe for a popular state for business owners.
Delaware is known as a corporate haven thanks to its General Corporation Law. Supporting this status is their Chancery Court, or Court of Chancery, which handles most business matters. The Chancery Court consists of judges familiar with business affairs, which helps expedite cases related to Delaware LLCs.
Advantages of Starting an LLC in Delaware
Low filing fees and franchise taxes
Chancery Court provides a specialized legal system
No corporate income taxes for foreign LLCs electing corporation taxation
Simple business formation process
Ranked #1 as of 2019 for fairness and reasonableness in state liability systems[7]
Disadvantages of Starting an LLC in Delaware
No flat franchise tax
Requires Delaware-based registered agent
May require multiple accountants to deal with state-specific structures
3. Nevada
Small business owners looking for tax benefits view Nevada as a tempting LLC haven. There’s no corporate income tax, personal income tax, or franchise tax to worry about.[5] LLC owners in Nevada can invest the money saved through these tax rates back into their business.
When it comes to privacy, Nevada is arguably second to none. While most states agree to share certain information with the IRS,[8] Nevada is one of two states that doesn’t have such an agreement. Entrepreneurs can enjoy an added measure of privacy because they’re not required to share identifying information with the government.
Nevada is also just one of a handful of states that allows complete anonymity when it comes to public filings.[9] Limited liability companies can remain anonymous even in public registration filings.
However, it’s worth reiterating that unless your business operates in Nevada, the benefits of filing in this state likely aren’t worth the cost of maintaining a registered agent and the double burden of fees associated with formation and annual report filing in both your home state and Nevada.
Advantages of Forming an LLC in Nevada
No corporate income tax, personal income tax, or franchise taxes
Complete anonymity for small business owners that start an LLC
No annual meetings or operating agreements required
No information-sharing agreement with the IRS
Disadvantages of Forming an LLC in Nevada
Annual filing fees and business license fees that can apply in both Nevada and your home state[10]
Any income your business earns in a state outside of Nevada (including your state of residence) will be subject to that state’s corporate income tax
Nevada’s privacy protection laws only apply in Nevada. If you expand and register your business in another state as a foreign LLC, you won’t have the same level of anonymity as you do in Nevada.
4. Wyoming
Wyoming makes the list thanks to its business-friendly policies, especially regarding tax benefits. Wyoming doesn’t have personal income, corporate income, or franchise taxes. It ranks 1st overall in the Tax Foundation’s 2023 State Business Tax Climate Index.[11]
What makes Wyoming unique, even among the best states to form an LLC, is its lifetime proxy policy.[12] A lifetime proxy allows the owner of a Wyoming LLC to appoint a different person to hold their shares and vote on their behalf. This gives Wyoming small business owners almost complete anonymity.
But again, the disadvantages in time, cost, and complexity of forming an LLC outside of the state where you make money typically outweigh these benefits.
Advantages of Forming an LLC in Wyoming
Some of the lowest local tax rates in the country[13]
Entrepreneurs aren’t required to visit the state to file paperwork
No personal or corporate income tax
Owners can remain anonymous via a lifetime proxy policy
No franchise tax
Disadvantages of Forming an LLC in Wyoming
Steep administrative costs
The LLC must be dissolved if a member dies or files for bankruptcy
Privacy and tax benefits only apply in Wyoming, so if Wyoming is not your home state, an LLC here can cost more and not protect your anonymity in other states
5. New Hampshire
Forming a New Hampshire LLC could be the right choice for small business owners who want to start an LLC outside their home state. Like in many business-friendly places, New Hampshire LLC owners enjoy a lack of personal income tax, although there is a 5% tax on interest and dividend income.[14]
Small business owners in New Hampshire also enjoy lower administrative fees than in other states, with the LLC filing fee set at $100 as of 2023.[15] Other administrative costs, such as filing annual reports and additional annual fees, are similarly affordable.
Advantages of Forming an LLC in New Hampshire
No personal income tax
Low administrative fees
State-funded loan program available for startups
Disadvantages of Forming an LLC in New Hampshire
New Hampshire does have a corporate income tax
New Hampshire LLCs must pay business profits and business enterprise tax
What Is a Foreign LLC vs. a Domestic LLC?
Despite what it sounds like, the terms “foreign LLC” and “domestic LLC” have nothing to do with international business. “Foreign” doesn’t mean that a non-U.S. resident owns a business or an LLC is outside the U.S.
Many specific regulations that govern how an LLC works start at the state level. Because of this, every state must distinguish between LLCs registered within its boundaries and those registered out of state. An LLC formed in your home state is known as a domestic LLC. If you create an LLC outside your home state, you must register it as a foreign LLC in your home state.
Advantages of a Foreign LLC
There are a handful of advantages to establishing limited liability companies in a different state from your home state. Many small business owners focus on tax benefits and potentially reduced regulatory burdens.
Foreign limited liability companies may be subjected to different tax laws and regulations from domestic LLCs, which could provide lower taxes for business owners. Failing that, foreign LLCs might generally have more favorable tax treatment, which can still put entrepreneurs in a good place come tax season.
Certain states also have more strict regulations and compliance requirements than others. Registering an LLC in states with more lax rules can help business owners save on filing fees or reduce the time needed to work on compliance.
Other minor advantages to forming a foreign LLC include:
Expanded Market Reach
Forming an LLC in a different state can help expand businesses to new markets and increase potential revenue streams.
Protection of Intellectual Property
If a business has significant intellectual property holdings in a different state, registering an LLC could help protect those assets.
Branding
Sometimes, a business has a more substantial brand presence in a different state. Forming an LLC there would keep the brand strong and increase trust.
Disadvantages of a Foreign LLC
Forming an LLC in a different state from your home state comes with potentially significant disadvantages, including extra administrative costs.
No matter where you form an LLC, you need to register it, pay taxes, and get licenses and permits in that state.[3] This means that you might find yourself in a position where you’re paying double to run your business.
For example, let’s say you live in New Jersey but want to take advantage of Nevada’s business-friendly policies. You can form an LLC in the latter without issue, but if you’re going to do business in New Jersey, you’ll need to register as a foreign LLC. Now you’re technically juggling two LLCs and double the costs.
That means paying twice the number of state filing fees, hiring a registered agent for each state, and being forced to track different compliance requirements such as seller’s permits. The latter can be incredibly confusing as a foreign LLC must comply with both the regulations of its home state and its adopted state.
Other disadvantages of a foreign LLC include:
Increased Complexity
Operating in multiple states makes a business more complex, with additional legal and financial hurdles.
Tax Issues
A foreign LLC might offer specific tax benefits, but operating in two states, such as in the example above, can make tax season more challenging and lead to double taxation.
Legal Liability
The more states an LLC operates in, the more it increases its exposure to legal liability.
The Best State to Form an LLC for an Online Business
If you want to start an LLC for a mostly or entirely online business, you can keep things simple. Your home state is likely the best place to form a limited liability company.
This is mainly due to tax reasons. If you’ve started your online business in New York but sell products or services online, you will be a New York LLC paying New York income taxes. You might receive payments from many states or even from around the world. Still, your tax rate is determined by the state where a bank account is located, which is likely to be your home state anyway.
It’s also a simple matter of convenience. Forming a domestic LLC in your home state ensures the business is tied closely to your residence. This makes dealing with governmental requirements or regulations easier because you don’t have to keep track of multiple states’ rules.
The Best State to Form an LLC for a Consulting Business
Are you running a consulting-based small business and deciding where to incorporate it as an LLC? Here, too, your home state is probably your best bet for LLC formation.
The basic principle is the same as in an online business because most consulting companies conduct business almost exclusively online. If you’re offering your services remotely, any money going into your bank account will go through your home state’s tax rate anyway, so forming a domestic LLC makes more sense.
Of course, some consulting businesses do provide physical services across state lines. Remember that in these cases, a business entity must be registered in every state where it conducts business. This will almost always include your home state, which is likely to remain constant throughout the life of your limited liability company. Forming an LLC there is just more convenient.
The Best State to Form an LLC for a Real Estate Business
Real estate is one of the few industries where small business owners should consider the advantages of a foreign LLC seriously, especially for real estate investment.
This is because business income and activities almost always happen in the state where a property is located. Starting an LLC in the state or states the property is located in is the best way to limit costs.
For example, let’s say you live in California but own rental property in Nevada. All your business activities happen in Nevada. It makes more sense to start a Nevada LLC because you’ll only pay annual fees, filing fees, formation fees, and state income taxes in one state. Better to make it the state with the better tax benefits.
The Best State to Form an LLC for a Transportation Business
How is a transportation-focused limited liability company like a consulting business? They’re best served by being formed in an entrepreneur’s home state. This might not seem evident initially because transportation companies conduct business across state lines. The key is understanding that your home state is the center of your business activity.
For example, let’s say you have a trucking business in New York. You could start an LLC in Delaware to take advantage of its specific tax benefits and low fees. But this is a potential trap. You might find your budget ballooning due to additional formation and filing fees. There are also compliance regulations to consider.
The Department of Transportation (DOT) has state and federal guidelines that transportation companies must follow. One of these is the requirement for some businesses to carry DOT numbers. If you form an LLC outside your home state or the state you conduct business in primarily, the application and approval process can get complicated.
The Worst States to Form an LLC
Not all states are as welcoming to business formation as those listed above. Certain states can be a tough sell for small business owners for several reasons, including high filing fees, corporate income tax, franchise tax, or annual fees.
California
It might not come as a surprise to many entrepreneurs that California’s tax rates place a burden on some business owners. Personal income tax rates at the top end sit at 13.30%, and the combined tax rate can go up to 8.82%, placing California in spot 48 in the Tax Foundation’s 2023 State Business Tax Climate Index.[11]
New York
Recently, New York came in 49th place in the Tax Foundation’s 2023 State Business Tax Climate Index. [11] It’s not hard to see why. Personal income tax rates can go up to 10.90%, and small business owners could also find themselves paying local income taxes depending on the jurisdiction they live in.[16]
Add to that some comparatively hefty filing fees, including a $200 fee for filing Articles of Organization[17], and you can see why some LLC owners might be tempted to go to a different state.
New Jersey
With individual income tax hitting up to 10.75% and at least one jurisdiction requiring local income taxes[18], New Jersey ranks last place among all 50 states in the 2023 State Business Tax Climate Index.[11] Considering corporate income tax can go up to 11.50%, it makes sense why some small business owners don’t consider New Jersey a business-friendly state.
Best States to File an LLC as a Non-Citizen
Non-citizens looking to start an LLC in the United States can choose a business-friendly state. As someone not living in the U.S., non-citizens don’t have to consider the advantages of business formation in a home state.
Business owners outside the U.S. looking to expand their business would best be served by creating a Nevada LLC, Delaware LLC, Wyoming LLC, or New Hampshire LLC.
Like many business decisions discussed here, it comes down to tax benefits. Each state listed above offers favorable tax rates, which is especially important when considering the cost of doing business internationally.
The final choice will depend on your business’s circumstances and needs. Still, Wyoming might be an excellent first choice for non-citizen business owners. The lack of personal or corporate income tax, franchise taxes, and its strong privacy protections through a lifetime proxy make it a strong base for future LLC owners.
The Bottom Line: Best State to Form an LLC
It should be clear by now that the best state to start your LLC is probably where you already live. Even if you live in a tax-heavy state like California or New York, it’s usually best to just bite the bullet and accept that as a cost of doing business.
Some states, like Delaware and Nevada, offer a more favorable business environment, but you’ll only increase your tax burden further if most of your work happens in your home state anyway. The last thing you want as an entrepreneur is to bind your new business in unnecessary red tape.
Next Steps to File an LLC
No matter where you start an LLC, certain parts of the filing process remain consistent.
You’ll need to pay filing fees to the state, which range from $40 to $500 and are due when you file the Articles of Organization with the Secretary of State.
You’ll likely need to file an Operating Agreement to explain how your LLC is run and managed.
You must appoint a registered agent for the state you form your LLC in.
Remember that LLC filing runs on a state government’s schedule, which means processing times can vary or drag on. You might be able to expedite the process, but this will require an additional fee.
If this sounds a little too time-consuming, you do have options. Online LLC filing services can help take the pressure of handling your formation documents on your own off your shoulders, giving you more time to focus on the important work of building your business.
Get Help Forming Your LLC Today
LLC formation is not a uniform process. Each state has advantages and disadvantages that can make it difficult to choose between filing for a domestic LLC and a foreign LLC. And that’s not even getting into the nuts and bolts of the filing process itself.
On that last note, at least you can have someone in your corner. Swyft Filings has years of experience in LLC formation and can automate the filing process no matter where you choose to start your LLC.
Our comprehensive filing process can be broken down into five simple steps:
A thorough review of your information
An in-depth check of the availability of your business name
Document filing and approval notification
State approval document forwarding
Reliable compliance support
You can start the process now with a simple questionnaire that can be completed in minutes, skipping confusing paperwork in favor of focusing on your business.
Tax advantages: Enjoy pass-through taxation for your business
Operational flexibility: Choose a management structure that fits your specific needs
Asset protection: Separate personal and business finances, safeguarding your personal assets
Frequently Asked Questions
Can I live in a different state than my LLC?
Yes. You don’t have to form a limited liability company in your home state or the state you conduct business in. You can start an LLC in a more business-friendly state even if you don’t live there.
What is the best state to form an LLC in?
The best state to form an LLC depends on the specific needs and goals of the business. The vast majority of small- and mid-sized businesses should form an LLC in their home state. There’s less red tape to cut through when you file in the state where you reside and do your work.
However, Delaware, Nevada, Wyoming, and New Hampshire have business-friendly environments that may suit certain companies in very specific circumstances, such as those in the real estate industry.
Do I need a registered agent in every state where my LLC operates?
If you register an LLC in any state besides your home state, you must have a registered agent in that state and any other state you operate in. You’re free to be your own registered agent, but we recommend using a registered agent service to protect your privacy.
What is the cheapest state to form an LLC in?
Kentucky has the lowest LLC filing fees of any state at $40.[19] However, upfront filing fees aren’t the only concern when starting an LLC. Taxes, annual fees, nuisance fees, and other costs should be part of your decision-making process. These combined costs can make your home state the least expensive option in the long run, except for niche industries.
Do I need an LLC to run an online business?
You aren’t required to create a formal business entity to run an online business, but starting an LLC does provide essential benefits. LLC formation can offer you asset protection, liability protection, tax benefits, and other perks you usually wouldn’t have access to.
Which state is the best to form an LLC for a non-resident?
Wyoming consistently ranks among the top states popular with non-residents for business formation. Starting a Wyoming LLC offers small business owners access to the state’s lower tax rates and privacy protections (lifetime proxy).
Bibliography
Tax Foundation. “The U.S. Has More Individually Owned Businesses than Corporations.” Accessed March 24, 2023.
IRS. “Limited Liability Company (LLC).” Accessed March 24, 2023.
Small Business Administration. “Pick your business location.” Accessed March 24, 2023.
Delaware Division of Corporations. “Certificate of Formation of a Limited Liability Company.” Accessed March 27, 2023.
Tax Foundation. “Taxes in Nevada.” Accessed March 27, 2023.
Delaware Division of Corporations. “Annual Report Statistics.” Accessed March 27, 2023.
U.S. Chamber Institute for Legal Reform. “Ranking the States.” Accessed March 30, 2023.
IRS. “IRS Information Sharing Programs.” Accessed March 30, 2023.
Nevada Legislature. “Chapter 86 - Limited-Liability Companies.” Accessed March 30, 2023.
Nevada Secretary of State. “Annual List Fee Schedule for Profit Corporations.” Accessed March 30, 2023.
Tax Foundation. “2023 State Business Tax Climate Index.” Accessed March 30, 2023.
Asset Protection. “Wyoming Limited Liability Company.” Accessed March 30, 2023.
Tax Foundation. “State and Local Sales Tax Rates, 2023.” Accessed March 30, 2023.
New Hampshire Department of Revenue Administration. “Taxpayer Assistance - Overview of New Hampshire Taxes.” Accessed March 30, 2023.
New Hampshire Department of State. “Domestic and Foreign Limited Liability Company.” Accessed March 30, 2023.
Tax Foundation. “Taxes in New York.” Accessed March 31, 2023.
New York Department of State. “Forming a Limited Liability Company in New York.” Accessed March 31, 2023.
Tax Foundation. “Taxes in New Jersey.” Accessed March 31, 2023.
Kentucky Secretary of State. “Fees.” Accessed March 31, 2023.
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